Category Archives: General

Five Tips for Sustaining a Great Law Firm Culture

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Steven Harper wrote a terrific piece on law firm culture in response to the latest Citi Private Bank/Hildebrandt update on the legal market.  Harper is incredulous of Citi/Hildebrandt’s warning that “Law firms discount or ignore firm culture at their peril.”  He makes the point that “consultants have encouraged managing partners to focus myopically on business school-type metrics that maximize short-term profits…what has resulted from that focus: the unpleasant culture of most big firms.”

The reverse does not have to be (in fact often is not) true.  Namely, firms with a strong, collegial culture are not inherently doomed to poor economic performance.  They may not top $3mm a year in profits per equity partner, but everyone working in those firms earns a very good living, they have strong and enduring client relationships, and they enjoy a balanced and rewarding professional life.  Having that kind of positive firm culture requires work and discipline – and, especially, a commitment not to throw away long held values in the face of short term economic challenges.

Our recent survey on best practices in law firm strategic planning confirmed this point.  Namely, the firms experiencing the most successful results from strategic planning are much more likely to have articulated shared values or principles as part of that process.  At the same time, those highly successful firms are much more likely to adopt and track measurable objectives as part of the strategy process.  In other words, the most successful firms balance a strong commitment to long held cultural values with a pragmatic approach to setting objectives (i.e., financial, client relationship, and other measures).

Having had the pleasure and privilege of working with a number of firms over the years that have cultivated and sustained great cultures, here are five suggestions for how you can cultivate, embrace and sustain a set of shared values that define a great law firm culture.

  1. Honor the Founder(s) – When I started my consulting career at Arthur Young (that dates me), John Smock made sure everyone in the practice got a copy of a relatively short book entitled, Arthur Young and the Firm He Founded.  That little book encapsulated many of the core values of the firm – and traced them to the values of the hard working Scotsman who immigrated to America and started the firm.  Whether your firm was founded 20 or 200 years ago, you are likely to find some of the roots your firm’s values and culture in the character of your founder(s).  Honor those roots.
  2. Celebrate a Milestone Year – Round number anniversaries lend themselves to celebrations (10th, 50th, 100th).  So do record years, though they tend to arrive with more frequency and less fanfare.  Take the opportunity of a milestone year to reemphasize the shared values that brought the firm to that point.  Embrace and celebrate your culture and your shared values – not just the anniversary or the record.
  3. Document Your Stories, Your History and Your Culture – I have a number of books in my collection from clients – both law firm and corporate – in which the history of their organization (and its culture and values) is documented and described for posterity.  Sometimes those books are commissioned in conjunction with an anniversary, others mark the passing of great leaders, and still others were done simply to capture the stories before they were lost to memory.  Those stories may be the very best window into truly understanding the firm’s culture and the values – they are a way to connect our rational understanding of the values to our emotional understanding of values (see this brief slideshow for more).  Stories can even be used when you need to drive cultural change (see Peter Bregman’s HBR article on the topic).
  4. Ask Your People to Define the Culture – We have used a technique very successfully over the years to isolate core values and help organizations coalesce around them.  Ask a very simple question, “What three words best describe the values that endure over time in our firm?”  The resulting word-cloud is enlightening and it helps to define (or reinforce) the firm’s shared values.  It can be used in many settings to spark a discussion of shared values and the culture – keeping that culture front and center as other decisions are being made (e.g., employee reviews, partner compensation, lateral hiring, strategic planning, etc.).
  5. Put It In Your Plan – Finally, take a lesson from the firms having the most success with strategic planning and strategy implementation.  Articulate your values as part of your overall strategy.  Include a long term mission as part of your strategic plan and include a concise articulation of your core values in that mission.

While the embrace of firm culture and values may be belated for some, it is welcome nonetheless.  Whether your firm is large, mid-sized or small, sustaining a positive firm culture is a critically important element in a genuinely successful law firm strategy.  Who knows, it might even land your firm at the top of the Vault.com rankings for best firms to work for.

 

Implementing Law Firm Strategy Using a Balanced Scorecard

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We have seen a spike of interest in the Balanced Scorecard since our December 2012 strategy question of the month focused on what kinds of measures law firms are using.  As regular readers will recall, the only measures firms are using with a high degree of consistency and reliability are financial measures.  Other areas – client satisfaction/client relationships; people/professional development; operational improvement – are generally not measured.

The balanced scorecard, as originally described by Kaplan and Norton, envisions a balanced set of goals, objectives and measures in four areas (as depicted in the graphic below).  Those goals and metrics should ideally be focused on advancing the achievement of the firm’s vision and strategy.  While these four categories are logical and work for the majority of organizations, the authors (and experienced managers) recognize that measures should be aligned with the strategy (rather than aligning strategy with the generic scorecard categories).

Balanced Scorecard Graphic

The concept is easy enough to understand, but how does one go about implementing some version of the balanced scorecard in a law firm environment?  In our 2009 book on the topic, we highlighted the range of barriers law firm managers might encounter when trying to use this very powerful tool to facilitate strategy implementation.  We will leave those challenges for another post so we can focus on how to use the balanced scorecard in a law firm setting.

The real key to the process (and this is equally true in a corporate setting and/or a non-profit organization) is to ensure the strategy is aligned from the firm level to the practice (and administrative department) level – and from the practice level to the roles individuals play in strategy implementation.

Cascading

Obviously, this graphic assumes the firm has a strategic plan.  For those who might have missed it, our June 2012 strategy question of the month focused on best practices in law firm strategic planning.  Some examples of how this cascading works across the categories of a generic balanced scorecard follow.

FinancialA firm with clear objectives for profit improvement (could be margins, could be PPP, could be some other reasonable proxy) might ask each practice group to identify the profit driver that offers the most promise for improving performance in their area.  In this example, the practice has identified realization improvements as the most promising area.  They would then set a target for improved realizations and adopt initiatives to drive that improvement.  Individuals in the practice would then move those initiatives forward.  In this example, individuals would focus on getting invoices out on a timely basis, with higher levels of accuracy.  Thus, the firm’s goal for improved profit margins cascades to a practice’s goal for improved realizations, which in turn cascades to individual’s committing to more timely billing.

ClientsOur second example focuses on the client dimension of the balanced scorecard.  At the firm level a goal might be adopted to broaden client relationships where ever possible.  This might be translated into an objective measure that tracks how many clients are served by multiple practice areas and/or partners from different practice areas.  At the practice level, this focus might translate into a set of target clients for whom the practice wants to expand its relationships (either bringing other practices into their relationships or by beginning to serve clients originated by other practice groups).  At the individual level, that could lead to specific plans to introduce colleagues to selected clients (or conversely to seek introductions to colleagues’ clients).

PeopleOur third example focuses on cascading for people oriented goals and objectives.  A firm level goal focused qualitatively on having the best people in the market could be measured via the number and nature of external recognition(s) the firm’s people get (e.g., Chambers, Best Lawyers, Super Lawyers, etc.).  At the practice level, that could translate into initiatives and measures focused on getting people professional (or industry) certifications.  In turn, individuals can adopt specific plans to build certification into their professional development plans.

OperationsOur final example focuses on how operational improvement goals might cascade in a law firm.  In this case, imagine a firm that has adopted a goal to reduce costs related to delivering client services.  A litigation practice in that firm might adopt an initiative to engage project managers on some or all of their matters.  At the individual level, partners/engagement leaders would commit to actively partnering with those same project managers to capture the benefits of project management discipline on matters.

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These are obviously generic examples.  However, if you have clearly defined firm level goals, those can (and should) be translated into measurable objectives so progress can be tracked and the firm can make adjustments if the strategy is not working.  With clear firm level goals and objectives, practice groups and administrative departments can align their plans with key goals.  Note, not every department and practice needs to align with every firm level goal – but, every practice has some valuable role to play in the implementation of the firm’s overall strategy.  Finally, this cascading approach enables every individual to take meaningful action that contributes to the achievement of practice and firm level goals.

 

 

 

 

 

 

Top Insights from 2012 Strategy Questions of the Month

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Throughout the course of 2012, Sterling Strategies conducted monthly mini-surveys, each focused on a single strategy topic.  The intent was to develop some empirical data on what works and what does not work relative to a variety of strategic management challenges.

We certainly learned something every month.  Often the findings and insights were entirely new (if not entirely counter-intuitive).  Occasionally, the findings confirmed something we believed, but lacked the data to support.

Before setting our sights on advancing the state of strategic management in 2013, we thought readers might enjoy a highlight reel of sorts of the most significant findings from the 2012 strategy question of the month series.  The list is presented as a “top ten,” but the insights are ordered for readability and flow.

  1. Grow your own – When developing a strategy for generational succession, it is best to develop people yourself (rather than seeking to hire future leaders laterally).  Our November 2012 survey found that “high lifer” firms (i.e., firms with higher percentages of people who were hired at the entry-level and stayed) have dramatically higher confidence that future leaders exist within every experience level of their firm.
  2. Confront the elephant under the rug – The August 2012 survey focused on what approaches to managing under performing partners actually work and which do not.  What we found was that under performance rarely improves without frank discussion and accountability.  More importantly, confronting under performance actually has a reasonable success rate.
  3. Show me (more than just) the money – What characteristics make up a “model partner?”  That was our question in July 2012 and what we found was that, while originations and billings are very important characteristics in a model partner, subjective factors (e.g., training associates, bringing legal acumen to the table, being a good corporate citizen) comprise nearly 50% of the mix of characteristics firms want from the hypothetical ideal partner.
  4. See no evil, hear no evil, speak no evil (at least when it comes to partner compensation) – Our inaugural survey in January 2012 examined the question of what approaches to setting partner compensation lead to the highest levels of satisfaction.  It turns out, objective (i.e., formula) systems correlate with the highest levels of satisfaction.  And, so-called “closed systems” in which compensation and other data are not published are also closely correlated with higher satisfaction.
  5. The “vision thing” is a key to effective strategic planning – We took an objective look at what tools and approaches lead to more effective strategic planning in law firms (beyond, obviously, hiring Sterling Strategies) in June 2012.  The firms with the most effective strategic planning processes are much more likely to have articulated a vision for the future, a set of shared values, and measurable objectives to track progress toward achieving major goals and strategies.
  6. Focus practice group leaders on things that make a real difference in group performance – Firms with the most effective practice group management experiences are much more likely to ask practice groups to focus on cross-marketing, on profit drivers for their respective group, and on aligning practice strategy with firm-level strategy.  Meanwhile, the least effective groups get bogged down in administrivia.
  7. Better budgeting practices – Firms with the most effective budgeting processes are more likely to plan for growth (in addition to looking for cost savings).  And, the more effective budgeting processes are considerably more likely to involve practice group leaders in the budget development process.
  8. 2012 profit growth was driven by production and realization improvements – The bloom was clearly off the rose relative to using rate increases to drive profit growth (unlike the decade before the financial crisis).  Bonus question – is leverage dead?  On the surface the answer would appear to be ‘yes,’ but the reality is that leverage is wearing new disguises (e.g., more income partners, larger top-to-bottom compensation differentials, growing use of contract attorneys, etc.).
  9. Data, data, data (if you hope to be successful with AFAs) – Alternative fee arrangements are growing across a number of categories.  Law firm leaders were emphatic in noting that the key to success with AFAs is well analyzed data (both cost data and historical work load data).
  10. Practice portfolios are driving domestic law firm mergers – Allowing for alignment of fundamentals (e.g., firm cultures and economic compatibility), the most important driver of mergers these days is finding a merger partner with complimentary practice area strengths.

As a bonus (since many may have missed it with the crush of year-end collections and the holidays), see our December 2012 findings regarding the use of objective measures and scorecards in law firms.  Short summary – firms are universally good or excellent at measuring financial objectives and results, but do a poor job measuring the strength of client relationships, people development, or much of anything else related to their operations.

We are immensely grateful to the many, many law firm leaders who completed the short (usually two-minute) strategy surveys throughout 2012.  That input enabled us to build a nice body of empirical data regarding a number of important strategic management topics.  It was helpful for law firm managers – and to us as strategy consultants.  We intend to take a slightly different approach in 2013 (shooting for five-minute surveys on a quarterly basis).  That will reduce the number of times we have to pester you all for input over the course of the year.  In place of some of the monthly surveys, we will share insights and proven approaches gained directly via other channels.

Best wishes for a very healthy and prosperous 2013.

SURVEY RESULTS – Goals, Measures and Balanced Scorecards – December 2012 Strategy Topic of the Month

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Our final strategy topic  for 2012 focuses on what law firm management is doing relative to setting objective measures for their strategic plans. More specifically, what do law firms measure and are those measures in any meaningful way connected to their own strategies?

What we learned – in short – is that law firms measure financial results with real consistency.  Beyond financial results, measurement is relatively limited and is often unconnected to firms’ strategies.  That puts law firm management roughly 15 years behind corporate management – where balanced scorecards enable companies to translate strategies into measures in four primary categories:

Balanced Scorecard Graphic

The balanced scorecard idea was novel when Robert Kaplan and David Norton introduced it in the mid-1990’s.  Essentially, they recognized the peril in having a company focus only on financial performance – without consideration to its performance vis-a-vis customers, employees and underlying business processes.  Since then, research has demonstrated the positive impact of adopting measures in key areas beyond financials.  For instance, a 2008 study published in Advances in Accounting found that “firms that adopt the balanced scorecard significantly outperform firms that do not (including financial returns).”

No one responding to this month’s survey has formally adopted a full scale balanced scorecard approach.  However, roughly 40% of the firms responding to the mini-survey have either adopted portions of the balanced scorecard (25%) or are working with an informal version of the balanced scorecard (15%).  This is consistent with what we found in early 2009, when we were putting together case studies for Balanced Scorecards for Law Firms – namely, very few firms have formally embraced a balanced scorecard approach to strategy implementation and/or performance measurement.

Unsurprisingly, 100% of law firms report having and using financial measures.  In fact, the overwhelming majority of them consider their financial metrics to be either “solid and reliable” (24%) or “excellent and highly informative” (72%).  To the extent firms have measures linked directly to their strategic plans, those measures are predominantly financial.  Asked specifically if they have measures linked to their strategy, only about half of responding firms reported make any effort to link measures (financial or otherwise) to their strategic plans.

A summary of how prevalent measures in each of the four balanced scorecard categories are within law firms underscores the overwhelming reliance on financial results as a proxy for everything else.

Survey Table

The most striking thing here is that although over 95% of all firms have solid or excellent financial measures, 80% of firms have limited (or no) measures of client satisfaction.  This is consistent with our October 2012 strategy topic of the month.  In that study we found that relatively few firms have structured client feedback programs focused on their top clients.  Frankly, this is both a huge missed opportunity and a potentially critical mistake.  Even if you never seriously evaluate or adopt a balanced scorecard – at the very least augment your financial metrics with systematic feedback from clients.

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As always, we thank you for your input and willingness to share your insights via these brief monthly surveys.  We will return next week with a recap of the top ten insights gained from the 2012 strategy question of the month surveys.

Best wishes for a healthy and prosperous 2013.

 

Goals, Measures and Balanced Scorecards – December 2012 Strategy Topic of the Month

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Our final strategy topic of the month for 2012 focuses on what law firm management is doing relative to setting objective measures for their strategic plans. Peter Drucker famously said, “you can only manage what you can measure.”  The question is, do law firms measure progress against the key elements of their own strategies (i.e., are they measuring what they are managing)?

Kaplan and Norton put systematic rigor behind measuring key elements of strategy with the Balanced Scorecard. The essence of the balanced scorecard involves adopting a set of measures that allow management to track whether strategies (and strategy implementation) is working.  We take a particularly keen interest in the topic, having written a book for Ark Publishing/Managing Partner on applying balanced scorecard principles in law firms.  A generic balanced scorecard adopts measures in four broad categories.

 Balanced Scorecard Graphic

This month we explore the extent to which firms are using measures in these categories and the extent to which they are linking those measures to strategic goals.

As always, the survey is very brief (should take less than two minutes to complete) and all responses will remain confidential.  If for some reason you do not see the survey in the window immediately below, click this link to be taken directly to the survey.  Deadline for responses is end of business PST on December 21, 2012.  Questions can be directed to info@sterlingstrat.com.  Thank you for your insights and candor.

Partner Development Strategy – November 2012 Strategy Question of the Month – Survey Results

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Our strategy topic for the November 2012 focused on where the future leaders of law firms will be coming from.   There is a simple industry wide issue relative to generational demographics.  A very large cohort of baby boomer partners will be retiring over the next 20 years.  In fact, by 2020 (eight years from now) half of the boomer cohort will be 65 or older.  If you look at the broader demographics, the generational cohorts create something akin to a roller coaster.
 
 
  • Baby Boomers are a large cohort of over 80 million people
  • Generation Xers  are a smaller cohort of roughly 60 million people
  • Millennials are a large cohort of over 80 million (similar in size to the boomer generation – with many still in high school)
So, how do you overcome the overall industry (and societal) demographics to ensure you have strong people across all generational cohorts?  Our findings point emphatically to the value of hiring and developing ‘lifers’ (i.e., people who stay with the firm they join at the entry level).  In other words, the best path to ensuring you have great people across the generations is to hire and develop your own!  To quote a  couple of respondents:
 

  • “We are blessed with strength throughout the demographic ranks, as well as a culture that is attracting like minded star/potential star laterals. We highly value having high quality lawyers at all levels (including entry level), training and mentoring, and making it such that all who work here can, if they do their parts, make a career at our firm.”
  • “(Our future leaders are) most likely from “lifers”.  We have a good group of them.”
Firms who reported that 50% of more of their current attorneys are ‘lifers’ (let’s call those firms ‘high lifers’) are dramatically more confident in the future prospects of their young people.  Asked the importance of various generational cohorts in future succession (i.e., who are most likely to produce business developers and leaders over the next 10 years):
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  • ‘High lifers’ are three times as likely to consider their current associates to be a very or critically important source of future leaders (compared to ‘fewer lifer’ firms).
  • Similarly, ‘high lifers’ are 3.5 times as likely to have confidence in associates that they ‘plan to hire and train in the next ten years.’
  • ‘Fewer lifers’ on the other hand only truly have confidence in their mid-career (over 45) and younger equity partners.
 
More broadly, no one expresses much confidence in the ability of future lateral hires to be key players in 10 years.   However, there were firms anecdotally expressing great confidence in their laterals.
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  • “We have grown over the last 10 years 200%, mainly from lateral hires. It is from this group that we see our future leaders.”
  • “(Our future leaders will be) highly successful laterals that subscribe to our business philosophies and firm culture.”
In addition, there is not much confidence in the future prospects of younger (under 45) non-equity partners.  While not entirely surprising, the lack of confidence in non-equity partners raises enough questions about their long term role(s) to fill its own blog post.

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Hiring at the entry level has been consistently lower across the industry – as compared to pre-recession levels.  The following pie chart explains why that condition persists quite clearly.
 
Finally, a couple of respondents looked into the proverbial crystal ball and offered predictions about where the future generation of law firm leaders will emerge.
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  • “They will come from the middle tier of law schools, they will have worked their way thru college and law school, they will have started working early in their teens and understand how to make a dollar.  They will display a high level of emotional intelligence and a majority will be women.”
  • “From those who have a business/entrepreneurial bent as opposed to simply applying a legal analysis to a set of facts.”
As always we thank those who took the time to share their insights with peers and colleagues.  Comments are open and we welcome your emails and phone calls as well.
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Partner Development Strategy – November 2012 Strategy Question of the Month

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The demographics of the legal industry are clear – a very large cohort of baby boomer partners will be retiring over the next 20 years. In fact, by 2020 (eight years from now) half of the boomer cohort will be 65 or older. While it is certainly true that productive people work beyond age 65, there will clearly be a need for a new generation of highly capable partners to develop and manage client relationships, to train and mentor future partners, and to lead their firms and practices.

If you look at the broader demographics, the generational cohorts create something akin to a roller coaster.

  • Baby Boomers are a large cohort of over 80 million people
  • Generation X  are a smaller cohort of roughly 60 million people
  • Millennials are a large cohort of over 80 million (similar in size to the boomer generation)
There are clearly cultural differences between (and within) each generational cohort – something demographers have studied and documented.  However, simply looking at the size of the cohorts underscores the challenge facing law firms over the next 10-20 years. A large generational cohort has begun to retire and will continue to retire over the next 20 years.  Meanwhile, the generational cohort behind them is smaller (and we see many firms with fewer equity partners from this generation).  The Millennial generation represents a new, large cohort (boding well for the long run), but the oldest Millennial is still an associate today – and many are not even out of high school yet.

The question then is, “where will law firms’ future leaders come from?”

The very short survey below should only take two or three minutes to complete.  Your individual responses will remain anonymous and confidential – collective input will be published here at the end of the month.  Please complete the survey by the close of business (PST) on November 28, 2012.  If for some reason you do not see the survey in the box below, click this link and you will be taken directly to the survey.

As always, thank you for your willingness to share your experiences with your peers in the legal industry.

Survey Results – The Value of Client Feedback – October 2012 Law Firm Strategy Topic of the Month

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October’s law firm strategy topic of month was the value of client feedback. Our initial rationale for exploring this topic grew as a by-product of our June 2012 strategy question of the month. June’s survey focused on best practices in the strategic planning process. We found that one of the key factors that distinguished highly successful planning processes from their less successful counterparts was the incorporation of client feedback into the process. Specifically, we found that firms that reported having “very successful” planning processes were 45% more likely to have solicited client input than were firms that reported disappointing results.

So, we thought it would be worthwhile to build a deeper understanding of what law firms are doing more broadly vis-à-vis gathering and using client feedback. What approaches are they taking to gather that feedback and what outcomes are they experiencing?

Approaches to Gathering Client Feedback

Interestingly, no single approach is used consistently by more than a third of law firms participating in this month’s mini-survey. Roughly 30% of firms report they consistently have their managing partner (or his/her counterpart) conduct structured interviews with a cross section of clients. Similarly, roughly 25% of firms report they have their senior marketing or business development people conduct structured interviews with a cross section of clients. Note: in some cases, both the managing partner and chief marketing officer conduct the interviews jointly.

When you include firms that report using a given approach – but who do so less consistently – the most prevalent approach to gathering client feedback is having the managing partner conduct informal (often one-off) interviews with clients. Roughly three-quarters of all firms report that their managing partner (or his/her counterpart) conducts periodic, informal interviews with clients. However, those interviews are not conducted across a cross-section of the clientele – and, they are not structured to ensure key topics are covered consistently.

Written surveys of all kinds (e.g., randomized, major client focused, and/or end of matter surveys) have fallen by the wayside. That approach was fairly common in the 1990’s, but fewer than 20% firms report using written surveys (web or paper) at all.

The following table presents the full range of responses relative to approaches firms are using to gather client feedback on a regular and/or irregular basis.

USE OF CLIENT FEEDBACK APPROACHES BY US BASED LAW FIRMS

As is always the case with these monthly mini-surveys, participants were generous in sharing some of their practical experience in the open-ended section of the survey. Among the practices and insights law firm leaders shared were the following.

  •  We require annual meetings with top 100 clients on an annual basis. The meeting is structured and performed by supervising attorney. Top 25 clients are also contacted by firm managing partner on at least an annual basis.
  • We spend a lot of time educating/helping our senior attorneys develop disciplined, regular communications with their clients…we emphasize that all our attorneys need to know their client business/industry well.
  • (Our) client teams develop a (tailored) method that fits the client’s culture and relationship to evaluate how the firm is performing. (Examples include) team meetings with the various client contacts; in-person meetings between the key contact at the client and the (lead) attorney; and various contact attorneys reaching out to their respective contacts in the client organization…assessing our performance as the defined purpose.

It should be noted that there is still resistance in some quarters… “I’ve not yet been able to convince the Management Committee, who all have great relationships with their clients, that some client feedback system is necessary.”

Results and Outcomes from Gathering Client Feedback

Obviously, it is always helpful to have a sense for what our peers are doing to manage their respective firms more effectively. More importantly, however, it is critical to understand what results can and should be expected from pursuing any given management practice. In the case of gathering client feedback, the key benefits can be summarized in four points (reflecting five sets of insights firms report gaining more than half the time – either always or often).

 

  • First, over 70% of law firm leaders report gaining genuine insights into how to manage their client relationships more effectively.
  • Second, over 60% of law firms gain new insights into how their clients view the firm’s strengths and its opportunities to improve (i.e., its weaknesses and shortcomings).
  • Nearly 60% reported that the client feedback process always or often produces opportunities to do more of the type of work the firm is already doing for that client (i.e., to deepen the relationship).
  • Over half reported that gathering client feedback always or often produces opportunities to do new types of work for clients (i.e., to broaden the relationship.

In addition to the points above, it should be noted that a number of law firm leaders said that the process itself tends to generate goodwill. Further, it creates a dialog that grows the relationship in the context of the client’s needs rather than in a ‘selling’ mode. One law firm leader summed up both points quite succinctly in an open-ended comment, “(The process creates) great client satisfaction that we even take time out to spend time with them and more importantly “care”. Also learn how much many clients “hate” the “cross-selling” pushes.”

A complete summary of the outcomes firms experience via client feedback gathering processes is captured on the following chart.


Closing Points

Given the fact that structured, formalized client feedback processes are only pursued with high levels of consistency at somewhere between a third and half the firms surveyed, it strikes us that this type of outreach can still be a source of competitive advantage for law firms. It is certainly a factor distinguishing more successful strategic planning processes from the rest. And, our anecdotal experience confirms what we learned more systematically from this survey. Namely, asking clients for their feedback generates goodwill; it often creates new work (sometimes, entirely new work in new areas); and it provides valuable insights into what the firm does well, how it can improve, and how it can manage client relationships more effectively.

At Sterling Strategies, we tend to gather structured client feedback in the context of strategic planning assignments (though we do so as stand-alone engagements on occasion). However, our friends at the Wicker Park Group focus intensively on the client feedback process. They even publish a continuing series of client Q&A summaries you might find interesting.

As always, the comments section is open – and we always welcome your calls and emails.

IMPROVING THE BUDGET PROCESS – September 2012 Strategy Question of the Month

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Our September Law Firm Strategy Question of the Month focused on the budget process. Specifically, this month’s quick survey identified the budgeting practices that are most useful in real world settings in law firms. As in past months, we also looked for differences between firms reporting the greatest effectiveness in their respective budget processes from those reporting less success.

Unlike previous Strategy Questions of the Month (see for instance the June survey on strategic planning or the February survey on practice group management), there was not a tremendous difference between the most effective budget processes and others’. That may in part be a function of the generally high level of effectiveness law firm leaders reported in their respective processes. As you can see from the chart below, very few firms consider their budget process to be ineffective (or even of limited effectiveness).

To the extent there were differences between the “very effective” firms and others, the differences were very much on the margins. For instance, the budgeting approaches rated “absolutely essential” at firms with the most effective processes, were similarly rated “absolutely essential” by their peers in firms experiencing somewhat less success in the budget process. Nevertheless, there were a few notable differences (again, on the margins):

  • The most successful firms were more likely to build-up budget projections at the practice group level (in addition to doing so at the individual attorney and administrative department levels);
  • The most successful firms were somewhat more strongly focused on ensuring the budget reflected growth plans, whereas less successful firms were moderately more focused on ensuring their budgets reflected cost cutting commitments;
  • Finally, the most successful firms were more likely to focus leadership attention on aligning the budget with strategy (at the firm and practice group levels).

Firm leaders were asked to share how they approach the process philosophically (intentionally conservative, aggressive or “as accurate as data and projections will allow”). Roughly 80% of firms are striving for accuracy (over 90% of the most successful firms’ intent is to develop as accurate a budget as possible). We view that as a positive sign for the industry as a whole. In the depths of the recession (fall of 2008 and again in 2009), a majority of firms were taking a decidedly conservative approach to budgeting. The swing toward developing accurate budget projections is a healthy sign that leadership has greater confidence in the future.

The core question this month focused on which practices and approaches were most useful and helpful in the budget process. The top three approaches (each considered “absolutely essential” by over 60% of respondents) were:

  •  Building-up projections at the individual attorney level (i.e., salaries, draws, working attorney receipts, etc.);
  • Developing administrative department projections from agreed upon priorities and strategies; and
  • Reviewing all attorney, practice and/or departmental projections via a comparison with the previous year (budget and/or actual).

A relatively high percentage of firms do not even try to build-up projected revenues at the client level (e.g., projected revenues from the top 100 clients) or at the practice group level. Slightly more than half of all firms build-up client level projections and fewer than three-quarters of firms develop practice level projections.

Finally, while the distinctions between the most effective budget processes and the moderately successful processes were only found at the margins, law firm leaders shared a number of important ideas, insights and advice in the open-ended comments. Among the most insightful input were the following:

  • Accuracy is important to us…final result of budget is cash flow to partners (who) plan their own lives around the draws and distributions. Also, variance explanations that are based on inaccurate budgeting rather than on real differences from our expectations are viewed with suspicion.
  • (We) do intensive capital expenditures budget, plus detailed monthly cash flow (which is NOT an income statement), plus zero-based approach to all expenses.
  • We also do both pessimistic and optimistic models based on individual attorney performances.
  • We update budgets every 6 month in rolling 18 month program of forecasting.
  • Expenses are easy and we can plug them in and hit them within one percent annually. Lining up expenses with strategies and goals is simple and straight forward. Predicting revenue and cash flow is the hard part; we are usually successful in estimating and in the last couple of years have had done well with monthly cash flow projects. Nonetheless, cash receipts are always a bit lumpy and make budgeting a challenge.
  • Formula for best shot at success — balance realization with utilization and monitor expenses closely. Be efficient and effective and take nothing for granted.
  • Our attorneys are very reluctant to forecast much more than 3-6 months ahead, so trying to get them to project for a full year has proven impossible. We base (the year) on trends, knowledge of practices and their short range projections.
  • (Relative to client level projections, we do a) case by case analysis of all contingent cases…review three year averages of attorney productivity…and review any large non-repeat type cases or situations.
  • (We) have found it useful when presenting the expense budget to management to sort (accounts) in descending order on dollar value. This helps to ensure that major items are discussed, and that time isn’t wasted debating the lobby magazine subscriptions.
  • (We use a) bottom up process. The Finance Committee and Board review budgets, ask for justifications and will require a bottom up revision to get the final budget in line with long range goals. (It is) time consuming but effective in getting buy-in at all levels.

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As always we thank the many, many law firm leaders who took the time to share their knowledge and insights on this month’s strategy question. The comments section is open for those who want to continue the dialog and we welcome your calls (312-543-6616) and emails (jsterling@sterlingstrat.com) as well.

 

Managing Under Productive Partners

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The August 2012 law firm strategy question of the month focused on managing under productive partners – what approaches firms take to the issue; what works and what does not; and how the process plays out over time. In a very practical sense, this topic is the counter point to the July 2012 question of the month – what characteristics comprise a ‘model’ partner?

The term “under productive partner” implies that ‘problem’ partners are primarily an economic issue. Certainly, persistently weak revenue production  is the most common reason for frustration with partner performance. However, a number of law firm leaders noted in open-ended comments that “citizenship issues” and other qualitative factors regarding professional demeanor can also lead to a firm insisting a partner work to turn his or her performance around.

A Daunting Task, But Not Hopeless

Asked how often under productive partners manage to turn it around, over 95% of law firm leaders agreed that fewer than half of all ‘problem’ partners manage to have a “career renaissance.” In fact, over 50% of law firm leaders have found that fewer than 10% of partners manage to make an effective turn around. The silver lining – not a single law firm leader has found the well to be completely dry – everyone has seen a successful turnaround within their own firm.

Patience is a Virtue…

Firms are generally, but not universally, patient with regard to under performance. Many leaders noted that partner performance statistics are averaged over multiple years, so it takes time before performance issues are considered a persistent problem. Over two-thirds of the leaders responding to this survey noted that it takes at least two years of weak performance before the issue is addressed at all.

What Are Firms Doing to Address the Issue?

Asked to share which approaches they have tried and how well they have worked, law firm leaders were candid. The most commonly used approaches to address partner under performance:

  • Every firm has tried reducing compensation and holding one-on-one meetings with ‘problem’ partners.
  • Nearly everyone has tried “doing nothing and hoping things improve” (NOTE: It does not work – 90% report it “never works”).
  • Over 90% of law firm leaders have tried threatening compensation reductions and 90% have tried individual partner plans.

Conversely, a few approaches have not been as widely adopted, though some (as will become evident below) are actually reasonably successful in their own ways. Less frequently tried approaches include:

  • Only about half the firms indicated that they have tried to actively outplace partners (i.e., at client organizations, on the bench, etc.).
  • Slightly more than half of all firms have tried using a professional coach with under productive partners.
  • About 60% have tried “group interventions” (i.e., more than just a one-on-one meeting).

Now, it is absolutely true that actively outplacing someone is not really a turnaround per se – at least within the confines of the firm. However, for many partners, leaving (and landing well) is a tremendous career turn around. And, as it turns out, it is by far considered to be the most successful approach (by those who have tried it).

Blunt Tools

The other more successful approaches included actively cutting compensation; holding one-on-one discussions with under performers; and requiring individual plans. As one managing partner noted, compensation is a blunt tool and one you only get to use once a year (at most). In fact, these are all fairly blunt tools. However, a combination of one-on-one discussions along with individual turnaround plans has the direct benefit of creating accountability and a path forward for the partner in question.

Ultimately, the clear take-away messages:

  • Doing nothing and hoping it gets better never works;
  • Confronting the issue, creating a path forward, and holding people accountable has a reasonable success rate; and
  • Actively out placing those who cannot or will not turn it around is remarkably successful.

We welcome and encourage your comments below and your emails to John Sterling – jsterling@sterlingstrat.com .